Romania - Taxation

Romania's taxation system in the 1990s was notable for its erratic and confusing nature, but with reforms in late 1999 there has been movement towards uniformity and simplicity. As of 1 January 2000, the standard corporate income tax rate in Romania was reduced from 38% from 25%, and changes since then have been towards making 25% the usual rate. As of 1 July 2002 the profits of nightclubs, casinos, and discotheques, which had been taxed at 50%, were levied at 25% with the stipulation that total tax could not be lower than 5% of qualifying gross revenue earnings. In 2002, the rate applicable to export earnings was raised from 6% to 12.5%, and scheduled to reach 25% in 2004. From 1 July 2002, the corporate tax rate for companies in Romania's free trade zones (FTZs) was set at 5%, and scheduled to reach 25% by 2005. Reduced rates were still applicable to micro enterprises, defined as those with less than nine employees, revenues of no more than €100,000, and fully private. Micro enterprises were liable for tax equal to 1.5% of total gross revenues. Agricultural enterprises are still accorded preferential tax treatment. Capital gains are taxable at the normal corporate income tax rate of 25%. Dividends, paid to either residents or nonresidents, are subject to 10% withholding, although withholding taxes may be reduced according to the terms of bilateral double tax prevention treaties. Romania's double tax treaty with the United States dates from 1975. Branches of foreign companies are subject to the same taxes as Romanian companies, but representative offices were taxed at the older rate of 38%.

As part of the tax reform; Romania's top marginal rate for personal income tax was dropped from 60% to 40%. Personal income tax in 2003 was levied according to a progressive schedule with rates ranging from 18% (for taxable income above $67/month; as of 1 January 2003 the monthly personal deduction was about $57.35 up from $51 in 2002), to 40% plus $98/month (on increments of monthly income above $370), with intermediate rates of 23% plus $12; 28% plus $35; and 34% plus $62. The tax-exempt limit for a monthly pension payment was raised from $159 in 2002 to $182 in 2003. There are also property taxes.

The main indirect tax is Romania's value-added tax (VAT), with a standard rate reduced from 22% to 19% as of 1 January 2000. Many basic services are exempt from VAT including healthcare, scientific, educational and charitable activities, banking and financial services, and schoolbook editing. withholding tax on dividends, a value-added tax of 18%. Other taxes include excise and stamp taxes.

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